Option Investor
Newsletter

Daily Newsletter, Saturday, 11/13/2010

Table of Contents

  1. Leaps Trader Commentary
  2. Portfolio
  3. New Plays
  4. Play Updates
  5. Watch

Leaps Trader Commentary

Double Top Worries

by James Brown

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After massive gains from the late August low the market's up trend is finally starting to slow. We have been talking about the potential for a market correction for weeks now and we finally got a taste of one in the last few days. In perspective the losses last week were pretty mild. The U.S. dollar rallied almost all week in spite of the Fed's new QE2 program. Commodities managed to ignore the dollar's rebound until Friday. Fears of inflation in China sparked some serious profit taking in the commodity space. Cotton and sugar were hitting all-time or multi-decade highs but managed to reverse on Friday.

Inflation fears in China were the main culprit for Friday's market sell-off. At least that is the excuse we were given. It is true that China is seeing an increase in inflation and the government told banks to increase their reserve requirements, which effectively decreases lending and business activity. There was concern that China might hike their interest rates to slow down inflation over the weekend. Worries over a rate hike pushed the Shanghai index to a -5.2% loss. The rest of Asia and Europe followed China's decline although losses in Europe were less severe and the German DAX actually managed to close in positive territory. If we do hear China raising rates soon it could spark another drop but it will probably only have a short-term effect.

Another contributing factor to last week's market losses were rising concerns over the fiscally challenged European countries (e.g. Portugal, Ireland, Italy, Greece and Spain). Ireland was the main focus of concern but the big three European nations (Britain, France and Germany) all agreed to help backstop Ireland's debt. There was also speculation that the EU might offer a broader form of support to help stave off Ireland turning into another Greece-like meltdown. The euro decline throughout the week on debt default fears, which helped fuel the oversold bounce in the dollar.

Looking at the U.S. markets you probably heard a lot of concern over the reversal and a potential bearish double top pattern. The S&P 500 index managed to hit new highs two weeks ago but the lack of follow through does indeed make this look like a possible double top (see the weekly chart below). The S&P 500's rally appears to have failed right at the 61.8% Fibonacci retracement level of the 2008 bear-market decline. Of course we have to keep this in perspective. The market had grown extremely overbought and was way overdue for some sort of pull back. The real question is whether or not the S&P sees any follow through to the downside. Currently the index still has a bullish trend of higher lows.

Traditionally, in a "normal" market we might look for a pull back to the 38.2% Fib retracement level (see daily chart). Yet that would mean a drop in the S&P 500 toward 1160-1155. There are so many investors looking to buy the dip I highly doubt the index would fall that far. While I agree that Friday's close under 1200 is technically short-term bearish I still think this index will find support in the 1185-1175 zone - an area I would look to for new bullish entry points.

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The NASDAQ Composite does appear to be correcting. The up trend was so sharp that a breakdown below the trendline of higher lows was going to happen sooner than later. This is short-term bearish but again I'm not worried. The NASDAQ was way overdue for some sort of correction. Normally we might look for a pull back to the 38.2% Fib retracement but again I seriously doubt the NASDAQ will fall that far. In spite of CSCO's earnings guidance disappointment last week investors are still focused on the tech sector for growth. I would watch the NASDAQ to find support in the 2450 area.

Daily chart of the NASDAQ index:

The small cap Russell 2000 index has rolled over under resistance near the 740 level. If this pull back continues I would watch for support near prior resistance in the 715-710 zone. Then again the small caps tend to be a little more volatile so it wouldn't surprise me to see a dip all the way back to 700. I would use this sort of pull back (715-700) as a new entry point to launch bullish positions.

Daily chart of the Russell 2000 index:

We still want to keep an eye on the Transportation index and the SOX semiconductor index. The Transports have formed a bearish reversal pattern but the trend of higher lows is still intact. We can watch for short-term support in the transports in the 4675 area. The SOX also appears to have formed a bearish reversal but broken resistance near 370 should offer some support.

This coming week we will see an increase in economic data. Monday will bring the retail sales data and the New York Empire State manufacturing index. On Tuesday is the Producer Price Index (PPI) and the Industrial Production numbers. Wednesday we'll see the Consumer Price Index (CPI) gauge on inflation. Plus the housing starts and building permit data is released on Wednesday. Then on Thursday we'll hear the Philly Fed survey for November. Given the recent turnaround in economic data I'm expecting most of these to come in line with expectations or slightly better than expected, which should help soothe investor fears and help keep the rally alive.

In summary, not much has changed. We've been waiting for a correction and it looks like a correction has begun. Keep in mind that there are a lot of investors looking to buy the dip as an entry point they can ride throughout the rest of the fourth quarter. The only question is where will they buy that dip? Given my optimistic outlook any correction is probably going to get cut short in the -3% to -5% zone. A 3% pull back on the S&P 500 would be 1,188. Meanwhile a 5% pull back would be 1164, which is pretty close to the 38.2% Fib retracement. Again, I would focus on the 1185-1180 zone for support. It can be unnerving to buy the dip sometimes so readers may want to slowly scale into positions with small chunks. That way if the dip doesn't stop you have limited your risk.

- James


Portfolio

Portfolio Update

by James Brown

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Current Portfolio


Portfolio Comments:

The market's rally has spent a week now stepping backward. We are starting to see some corrections in our portfolio but that's both normal and healthy. We did add to new plays that made the jump from our watch list. Plus the GLD hit our target to sell the 2011 calls.

New stop losses for NVDA.

Disclaimer: At any given time the author may have positions in any or all of any companies mentioned in the Leaps Newsletter.

--Position Summary Table--
Table lists Directional CALL or PUT/LEAPS only.
Insurance puts, if applicable, are not shown.

Red symbol/name represents a play or option position exited or closed this week.



New Plays

Just Do It

by James Brown

Click here to email James Brown

Nike Inc. - NKE - close: 84.11

We have been watching NKE for a while now on our watch list. Shares continue to show relative strength. If you believe the worst is behind us for the global economy then NKE's business should be improving. Friday's dip toward short-term support near $82.00 looks like a bullish entry point. However, shares of NKE remain very overbought here at current levels. Yet instead of correcting lower the stock has been consolidating sideways. This still looks like an aggressive, higher-risk entry point so we only want to open small positions (at least half your normal trade size, maybe smaller). I would prefer to buy call LEAPS on NKE near $75 or its long-term trendline of support but that may not happen! We will try and limit our risk with a stop loss at $79.75. If we do get stopped out we can try again on a bounce near the trendline on the weekly chart. Our target is the $95-100 zone.

Use the 2012 January calls (Entry point - now, at current levels)

BUY CALL 2012 JAN $90 strike (NKE1221A90) current ask $5.50

Chart of NKE:

Weekly Chart of NKE:


Play Updates

Stocks Stumble

by James Brown

Click here to email James Brown

Editor's Note:

We are starting to see a few corrections but after the rally we've seen in the last couple of months a pull back now would be healthy.

-James


Closed Plays


None. No closed plays this week.


Play Updates


Akamai Technology - AKAM - close: 49.77

11/13 update: It was kind of a rough week for AKAM. The stock gave up four points from its Monday highs near $54. News that Level 3 was stealing Netflix (NFLX) as a customer from AKAM helped drag the stock lower. AKAM says they are still serving NFLX but investors are wondering how long that relationship will last. Overall the larger trend is still up. We knew AKAM would correct eventually. Look for support near the $48.00 and $45.00 levels. More conservative traders may want to tighten their stops. Currently our stop is $41.90.

Previous Comments:
We have already taken profits on our 2011 calls. That leaves the 2012 calls. Our second, longer-term target is $59.75. FYI: AKAM has seen some takeover chatter in the last several months.

- Current Positions -
Oct 06, 2010 - entry price on AKAM @ 45.50, option @ 7.50
symbol: AKAM1221A50 2012 JAN $50 call - current bid/ask $ 9.60/ 9.95

10/30/10 Sell the 2011 Jan. calls, option bid @ 5.10 (+78.9%)
10/06/10 Play triggered when AKAM hit $45.50

Current Target: $59.75
Current Stop loss: 41.90
Play Entered on: 10/06/10
Originally listed on the Watch List 10/02/10


Baidu, Inc. (Baidu.com) - BIDU - close: 110.64

11/13 update: Friday's performance was disappointing. On Wednesday and Thursday BIDU was breaking out from its sideways consolidation and hit new all-time highs on Thursday. Unfortunately a big drop in the Chinese stock market tripped up BIDU's advance. Worries that China might hike interest rates to slow down inflation sent the Chinese Shanghai stock market to a -5% loss on Friday. The Hong Kong Hang Seng fell -1.9%. Shares of BIDU lost -3%. I remain long-term bullish here but a correction could bring BIDU back down toward support near $100. Readers may want to wait before launching new positions. I see short-term support near $107 and $102.50.

FYI: If you haven't taken any profits yet on the 2012 position I would consider doing so now.

Previous Comments:
BIDU is a very volatile stock. This is an aggressive, higher-risk trade. Keep your position size small to limit your risk. We have already taken profits on the 2011 calls.

- Current Positions -
Only one position left.

Aug 02, 2010 - entry price on BIDU @ 83.50, option @ 13.00
symbol: BIDU1221A100 2012 JAN $100 call - current bid/ask $29.35/29.95

10/30/10 Adjusted exit to $129.00.
10/23/10 New stop loss @ 94.00
10/21/10 BIDU reports strong earnings.
10/02/10 Sell half of 2012 calls, BIDU @ 98.80, option @ 22.30 (+71.5%)
09/25/10 Take Profits on the 2011 calls, BIDU @ 97.83, option @ 14.75 (+84.3%)
09/25/10 New stop @ 79.00

Current Target: $129.00
Current Stop loss: 94.00
Play Entered on: 08/02/10
Originally listed on the Watch List 07/31/10


Berkshire Hathaway - BRK.B - close: 80.25

11/13 update: The rally in early November is starting to look like a failed oversold bounce. BRK.B has reversed under resistance near $84.00 and shares are now retesting support near $80.00 and its rising 200-dma. More conservative traders may want to consider raising their stops toward the $76-78.00 levels. Currently our stop is at $74.40. I would wait for a bounce from $80 or the 200-dma before considering new bullish positions. FYI: I prefer the 2012 calls if you're opening new positions.

- Current Positions -
Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 1.25
symbol: BRKB1122A85 2011 JAN $85 call - current bid/ask $ 1.01/ 1.10

- or -

Oct 29, 2010 - entry price on BRK.B @ 79.00, option @ 5.00
symbol: BRKB1221A90 2012 JAN $90 call - current bid/ask $ 4.80/ 5.10

10/29/10 Play triggered on dip at $79.00.

Current Target: $ 99.00
Current Stop loss: 74.40
Play Entered on: 10/29/10
Originally listed on the Watch List 09/11/10


Bucyrus Intl. - BUCY - close: 69.62

11/13 update: It was a rocky week for BUCY with the stock trading in a $5 range. Traders seem to be buying the dips near $69.00 but if the market pulls back much farther I suspect BUCY will retest the $65 area. I would consider buying LEAPS on a bounce near $65.00. The $75-76 zone is still short-term resistance.

Previous Comments:
We have taken profits once already near $70.

- Current Positions -
Sep 01, 2010 - entry price on BUCY @ 61.00, option @ 8.50
symbol: BUCY1122A60 2011 JAN $60 call - current bid/ask $11.30/11.50
-stop loss on BUCY @ 63.75

- or -

Sep 01, 2010 - entry price on BUCY @ 61.00, option @ 13.00
symbol: BUCY1221A70 2012 JAN $70 call - current bid/ask $13.35/13.55
-stop loss on BUCY @ 63.75

10/21/10 BUCY misses earnings.
10/11/10 New stop loss @ 63.75
09/18/10 Take Profits. We want to sell half of our 2011 Jan $60 calls.
BUCY is at $70.37. The calls are bid $13.85 (+62.9%) 09/18/10 New stop loss at $57.40

Current Target: $ 87.50
-special- Sell the 2011 calls when BUCY hits $78.50
Current Stop loss: 63.75
Play Entered on: 09/01/10
Originally listed on the Watch List 07/24/10


ConocoPhillips - COP - close: 62.42

11/13 update: COP rallied to new two-year highs on the back of oil's strength. Crude oil was able to ignore dollar strength this past week. Investors were bidding the commodity higher on expectations for rising demand from China. If the market does see a correction we can look for COP to find some support near $60 and near $58. I am not suggesting new bullish positions at this time.

Prior Comments:
We have already taken profits on the 2011 calls. That leaves the 2012 call position and our long-term target is $69.00.

- Current Positions -
May 20, 2010 - entry price on COP @ 51.00, option @ 4.75
symbol: COP 11A55.00 2012 JAN $60 call - current bid/ask $7.55/7.70

10/23/10 Exit the 2011 Jan. $55 calls @ 7.05 (+88%)
10/23/10 New stop loss @ 54.85
10/11/10 New stop loss @ 51.90
09/04/10 COP gave us a new entry with the move over $54.00
07/17/10 COP's bounce has failed. Consider an early exit!
07/03/10 More Conservative traders may want to exit early!

Current Target: $ 69.00
Current Stop loss: 54.85
Play Entered on: 05/20/10
Originally listed on the Watch List 05/08/10


Walt Disney Co. - DIS - close: 37.75

11/13 update: Shares of DIS ended the week at their highest closing price in ten years. I was a little worried on Thursday. The company reported earnings that missed estimates by one cent. Revenues came in at $9.74 billion versus expectations of $9.94 billion. By normal account the stock should have sold off sharply. Yet analyst firms were defending the stock on Friday and shares reversed higher with a +5% gain. I remain long-term bullish on DIS but we don't want to buy it here. The $38 level has been resistance in the past and DIS is up six weeks in a row. Look for dips near $35.00 as our next entry point. Remember, we have a long-term time frame here. We can afford to wait for the right entry point.

- Current Positions -
Oct 27, 2010 - entry price on DIS @ 35.60, option @ 2.23
symbol: DIS1221A40 2012 JAN $40 call - current bid/ask $ 3.15/ 3.25

- or -

Oct 27, 2010 - entry price on DIS @ 35.60, option @ 3.63
symbol: DIS1319A40 2013 JAN $40 call - current bid/ask $ 4.55/ 4.75

10/27/10 Play opened, DIS opened @ $35.60

Current Target(s): $42.00
Current Stop loss: 32.75
Play Entered on: 10/27/10
Originally listed on the Watch List 10/24/10


Diamond Offshore - DO - $70.47

11/13 update: DO rallied sharply on Monday and Tuesday and hit new six-month highs over $76 before giving it all back. Actually DO managed to eke out a gain for the week but the action this past week looks like a bearish reversal. I would expect DO to consolidate back down toward the rising 40 or 50-dma. Wait for a bounce there before considering new bullish positions.

NOTE - it looks like the option strikes have changed to reflect the recent dividend announced by DO. The 2011 March $80s are no the $79.25s. The 2012 Jan. $86s are now $85.25s.

- Current Positions -
Oct 21, 2010 - entry price on DO @ 67.50, option @ 1.90
symbol: DO1119C80 2011 Mar $79.25 call - current bid/ask $2.32/2.39

- or -

Oct 21, 2010 - entry price on DO @ 67.50, option @ 4.79
symbol: DO1221A86 2012 Jan $85.25 call - current bid/ask $4.70/5.05

10/21/10 Play triggered on a dip at $67.50

Current Target(s): $79.00 & 89.00
Current Stop loss: 62.40
Play Entered on: 10/21/10
Originally listed on the Watch List 10/16/10


EMC Corp. - EMC - close: 21.72

11/13 update: EMC managed to deliver another weekly gain. The stock hit new multi-year highs over $22.00 a share but failed to hit our initial exit target at $22.50. EMC announced the acquisition of privately held Bus-Tech Inc. Details of the deal were not disclosed. Meanwhile rumors are still circling that EMC might make a bid for ISLN.

I am seriously tempted to sell the rest of our 2011 Jan. $20 calls. We only have a couple of months left. If EMC sees any sort of serious decline it could really damage this option. If we see EMC close under $21.00 I might exit the remainder of our 2011 position early.

I am not suggesting new positions at this time.

- Current Positions -
May 6, 2010 - entry price on EMC @ 18.25, option @ 1.40
symbol: EMC 11A20.00 2011 Jan $20 call - current bid/ask $2.13/2.18

- or -

May 6, 2010 - entry price on EMC @ 18.25, option @ 2.50
symbol: EMC 12A20.00 2012 Jan $20 call - current bid/ask $3.80/3.95

10/23/10 Sell Half of the 2011 calls, bid @ 2.06 (+47%)
10/23/10 New stop loss @ 18.40
09/04/10 EMC has provided a new entry point with the move over $19
07/03/10 More Conservative Traders may want to exit early!

Current Target(s): $22.50 & 24.75
Current Stop loss: 18.45
Play Entered on: 05/06/10
Originally listed on the Watch List 03/20/10


Express Scipts - ESRX - close: 52.22

11/13 update: ESRX has shown plenty of relative strength this month but the stock seems to be losing momentum. I've been warning readers to look for a pull back. Broken resistance near $50.00 should be new support and that's where I would look to initiate new bullish positions. FYI: The P&F chart is bullish with a $74 target.

- Current Positions -
Oct 25, 2010 - entry price on ESRX @ 49.30, option @ 4.85
symbol: ESRX1221A55 2012 Jan $55 call - current bid/ask $5.80/5.90

- or -

Oct 25, 2010 - entry price on ESRX @ 49.30, option @ 7.10
symbol: ESRX1319A55 2013 Jan $55 call - current bid/ask $8.55/ 9.65

11/06/10 New stop @ 46.90
10/25/10 Trade is opened. ESRX opens @ $49.30

Current Target(s): $59.50
Current Stop loss: 46.90
Play Entered on: 10/25/10
Originally listed on the Watch List 10/16/10


SPDR Gold ETF - GLD - close: 133.69

11/13 update: Target achieved! It was an exciting week for gold. The futures traded over $1,400 an ounce for the first time in history. The GLD gold ETF hit an all-time high of $139.15 on Nov. 9th. Shares of this ETF actually gapped open at $138.70 that morning and we had a target to exit our 2011 March $120 calls if the GLD hit $138.00. Those calls opened at $20.00 that morning.

Some investors interpret a lot of volatility at new highs as a potential top so we need to be defensive here. Gold was doing a good job ignoring most of the dollar's strength this past week. Yet on Friday when traders starting profit taking everything went down, including gold. I am still long-term bullish on the GLD but I'm not suggesting new positions at this time. The spike higher this past week tagged a trendline of overhead resistance. I wouldn't be surprised to see a correction back to $130 (or even $125).

Our long-term target for the 2012 calls is at $149.00.

- Current Positions -
Aug 6, 2010 - entry price on GLD @ 118.00, option @ 7.70
symbol: GLD1119C120 2011 Mar $120 call - Exit on Nov. 9th @ 20.00 (+159%)

- or -

Aug 6, 2010 - entry price on GLD @ 118.00, option @ 10.75
symbol: GLD1221A130 2012 Jan $130 call - current bid/ask $16.10/16.70

11/09/10 Target hit - GLD opened at $138.70, 2011 Mar. Call opened @ $20.00 (+159%)
11/06/10 new stop @ 123.40
10/30/10 New stop @ 121.00. Readers may want to exit ahead of FOMC meeting
10/02/10 Sell half of the 2011 March calls, option @ 12.70 (+64.9%)
10/02/10 New stop $ 118.49
09/25/10 New stop @ 116.45, new target 138.50

Chart of the GLD:

Current Target(s): $149.00
Current Stop loss: 123.40
Play Entered on: 08/06/10
Originally listed on the Watch List 06/05/10


Humana Inc. - HUM - close: 59.20

11/13 update: Once again it looks like HUM is ready to correct lower. I am expecting a pull back toward the $55.00 level. Readers can launch new bullish positions in the $55.00-52.50 zone.

Previous Comments:
We have already sold (exited) our 2011 calls for a profit.

- Current Positions -
Sep 17, 2010 - entry price on HUM @ 50.50, option @ 6.40
symbol: HUM1221A55 2012 Jan $55 call - current bid/ask $10.00/10.90

10/23/10 Exit (sell) the 2011 Jan. $55 calls, bid @ 4.40 (+137%)
10/23/10 New stop loss $ 48.75
10/16/10 New stop loss @ 47.40
10/11/10 New Entry point - HUM is breaking out past $51.00.

Current Target(s): $69.00
Current Stop loss: 48.75
Play Entered on: 09/17/10
Originally listed on the Watch List 09/04/10


Intl.Business Machines - IBM - close: 143.74

11/13 update: IBM tagged a new high at $147.53 on Nov. 9th but that is starting to look like a short-term top. Shares will probably see some support near $142.50 but I am expecting a dip back toward the $140-137.50 zone. We'll wait for a dip toward $137-135 before considering new bullish positions.

Prior Comments:
We have already exited the 2011 calls for a gain.

- Current Positions -
Sep 30, 2010 - entry price on IBM @ 136.00, option @ 7.80
symbol: IBM1221A150 2012 Jan $150 call - current bid/ask $ 9.90/10.20

10/29/10 IBM hit $144, our target to exit the 2011 calls (+71.8%)
10/18/10 IBM reported earnings
10/16/10 Short-term target for 2011 calls set at $144.00.
09/30/10 Play triggered $136.00, stop $129.50

Current Target(s): $159.00
Current Stop loss: 129.50
Play Entered on: 09/30/10
Originally listed on the Watch List 09/25/10


Infosys Technologies - INFY - close: 66.30

11/13 update: Asian markets were down on Friday as they followed the Chinese market lower. INFY has been correction for the last week and now shares are testing support near $66.00. If this level fails the next level of support is $64.00 and then $62.00. I would be tempted to buy calls again on a bounce near $62.00. Keep in mind our stop loss is at $61.75.

Previous Comments:
We have already sold the 2011 calls for a profit. Our remaining positions are any 2012 calls. Our long-term target is $79.00.

- Current Positions -
July 1, 2010 - entry price on INFY @ 59.00, option @ 8.20
symbol: INFY 12A65.00 2012 Jan $65 call - current bid/ask $ 9.50/11.50

10/15/10 INFY reports earnings.
10/02/10 Sell the 2011 Calls, INFY @ 70.52, option @ 11.20 (+49.3%)
10/02/10 New stop @ 61.75
09/25/10 New stop @ 58.75

Current Target(s): $79.00
Current Stop loss: 61.75
Play Entered on: 07/01/10
Originally listed on the Watch List 06/26/10


L-3 Communications - LLL - close: 70.62

11/13 update: LLL was a watch list candidate. We had a buy the dip trigger at $72.00. Shares of LLL gapped open lower on Nov. 11th at $71.87 opening our position. The option opened at $5.80 that morning. The correction continued and LLL is now testing support near $70.00. The bad news here is that LLL has fallen back below potential technical support at its 50-dma and 100-dma. If the wider market continues to correct lower then LLL might end up testing support near $68.50. I would prefer to wait for a bounce before launching new positions. More conservative traders may want to wait for a bounce back above $72.00 before considering new positions. Please note I've adjusted the stop to $67.75.

- Current Positions -
Nov 11, 2010 - entry price on LLL @ 71.87, option @ 5.80
symbol: LLL1221A75 2012 Jan $75 call - current bid/ask $ 4.90/ 5.20

11/11/10 Play triggered with LLL's gap open @ 71.87

Chart of LLL:

Current Target(s): $79.50, 89.00
Current Stop loss: 67.75
Play Entered on: 11/11/10
Originally listed on the Watch List 11/06/10


McDonald's Corp. - MCD - close: 78.85

11/13 update: The ridiculously strong rally in MCD continues. Shares hit another new high on Thursday, this time at $79.85. Eventually this Dow-component will see a correction. Of course a breakdown under the trendline of higher lows will be considered bearish. Look for short-term support at the 30-dma. Look for better support near $76.00 and at $72.00. No new positions at this time.
FYI: One of these days MCD might announce another stock split. The stock's last split was 2:1 back in March 1999 around the $80 zone.

Previous Comments:
We have already sold the 2011 calls for a gain. Our long-term target for the 2012 calls is $89.00.

- Current Positions -
June 29, 2010 - entry price on MCD @ 66.50, option @ 2.20
symbol: MCD 12A80.00 2012 Jan $80 call - current bid/ask $5.00/ 5.15

11/06/10 New stop @ 71.90
10/23/10 New stop @ 69.75
10/16/10 Sell the remaining 2011 calls, bid @ $8.00 (+201%)
10/16/10 New target for 2012 positions @ $89.00
10/02/10 New stop @ 67.90
08/28/10 New stop @ 66.75
07/17/10 Take Profits! 2011 Jan $70 call @ 4.00 (+51%), 2012 $80 call @ 3.50 (+59%)

Current Target(s): $89.00
Current Stop loss: 71.90
Play Entered on: 06/29/10
Originally listed on the Watch List 06/12/10


Microsoft Corp. - MSFT - close: 26.27

11/13 update: We have been expecting a pull back toward $26.00 and MSFT hit $26.10 on Friday. Shares managed a meager bounce off its exponential 200-dma. Readers can use this pull back as a new bullish entry point. However, I suspect MSFT might see a dip closer to $25.50. Given our long-term time frame it's up to you whether you want to buy call LEAPS now or hope that MSFT dips closer toward its 50-dma.

Previous Comments:
The $28.00 level could be significant resistance as would the 2010 highs near $31.50. Long-term my upside target is $31.00. Our time frame is nine to twelve months. Stop loss at $23.25.

- Current Positions -
Oct 18, 2010 - entry price on MSFT @ 25.59, option @ 3.30
symbol: MSFT1221A25 2012 Jan $25 call - current bid/ask $3.40/ 3.50

- or -

Oct 18, 2010 - entry price on MSFT @ 25.59, option @ 2.30
symbol: MSFT1319A30 2013 Jan $30 call - current bid/ask $2.35/ 2.48

10/28/10 MSFT delivers stronger than expected earnings.

Current Target(s): $31.00
Current Stop loss: 23.25
Play Entered on: 10/18/10
Originally listed in New Plays on 10/16/10


Nokia Corp. - NOK - close: 10.28

11/13 update: NOK is another watch list candidate that hit our buy the dip trigger. Shares fell to $10.21 on Friday and we had a trigger to buy call LEAPS at $10.25. Now the close under its simple 50-dma is actually short-term bearish so readers may want to wait. We might see a better entry point near $10.00 or $9.75 before the month of November is over. Please note I've moved the stop loss to $9.49.

Our time frame is nine to twelve months. Our targets are $12.45 and $14.40.

FYI: ON Friday there was a Forbes article that suggested NOK could double (+100%) its stock price by 2016 if margins improved.

- Current Positions -
Nov 12, 2010 - entry price on NOK @ 10.25, option @ 1.75
symbol: NOK1221A10 2012 Jan $10 call - current bid/ask $ 1.63/ 1.72

11/12/10 Play triggered @ $10.25

Chart of NOK:

Current Target(s): $12.45, 14.40
Current Stop loss: 9.49
Play Entered on: 11/12/10
Originally listed on the Watch List 11/06/10


NVIDIA Corp. - NVDA - close: 13.26

11/13 update: NVDA was an outperformer on Friday. The company reported earnings on Thursday night and delivered a profit of 14 cents a share on revenues of $843.9 million. Wall Street was looking for a profit of 13 cents with revenues of $844 million. The revenue miss was overlooked for NVDA's positive earnings guidance. The stock reacted by gapping open higher on Friday above technical resistance at its 200-dma. Yet the rally stalled near the 50% Fib retracement level of the 2010 sell-off.

Essentially the trend is still up but NVDA looks short-term overbought and probably due for some profit taking. More conservative traders may want to take some profits off the table right now.

Please note that I am adjusting our final exit target to $14.50. I'm adjusting the stop loss to $10.89.

Previous Comments:
We took profits on the 2011 calls in late September. All we have left are the 2012 calls. Overall this remains an aggressive, higher-risk trade. NVDA has been struggling and sales growth has been slowing down but we are betting the worse has already been priced in for this stock. Keep your positions very small to limit our risk.

- Current Positions -
Sep 13, 2010 - entry price on NVDA @ 10.75, option @ 1.69
symbol: NVDA1221A12.5 2012 Jan $12.50 call - current bid/ask $2.81/ 2.91

11/13/10 New stop @ 10.89
11/06/10 New stop @ 10.40
11/04/10 Target hit @ 12.50, take profits: 2012 calls @ $2.40 (+42.0%)
09/25/10 Sell the 2011 calls, NVDA @ 12.26, option @ 2.70 (+70.8%)
09/25/10 new stop 9.95
09/13/10 Play Triggered @ $10.75

Current Target(s): $12.50 & 14.00
Current Stop loss: 10.89
Play Entered on: 09/13/10
Originally listed in New Plays on 08/28/10


Transocean Ltd. - RIG - close: 67.71

11/13 update: I want to urge some investor caution here. The rally in the oil service stocks has been incredible over the past two and a half months. Yet now the OSX index appears to be stalling under key resistance near the 230 level. If the OSX corrects lower it will probably drag RIG down with it. RIG has managed to post another gain for the week. Given our long-term time frame I am raising our final exit target to $78.50.

FYI: On a short-term basis look for support near $65 and $63. If these levels fail then look for support near $60.00.

Previous Comments:
We have taken profits twice, once at $59.00, and then we exited the 2011 calls at $67.00. We still have the 2012 calls and we're aiming for $78.50.

- Current Positions -
Jun 09, 2010 - entry price on RIG @ 43.50, option @ 7.25
symbol: RIG 12A60.00 2012 Jan $60 call - current bid/ask $14.75/15.00

10/23/10 New stop @ 54.85
10/13/10 Target hit at $67.00 to exit the 2011 call option @ 17.40 (+167.6%)
10/02/10 New stop @ 53.90
09/10/10 Target Hit @ 59.00 (take some money off the table), 2011 Jan $50 call @ $11.45 (+76.1%), the 2012 Jan $60 call @ $10.35 (+42.7%)

Current Target(s): $78.50
Current Stop loss: 54.85
Play Entered on: 06/09/10
Originally listed on the Watch List 06/05/10


TASER Intl. - TASR - close: 3.92

11/13 update: I am growing more cautious on TASR. The action this past week makes the early November rally look like an oversold bounce that just reversed. The stock is nearing potential support near $3.80 and we have a stop loss at $3.75. I am not suggesting new bullish positions at this time.

- Current Positions -
Buy TASR stock (entry $3.69), stop loss $3.75

10/23/10 Sell at least Half of our position: TASR @ 4.53 (+22.7%)
10/23/10 New Stop @ 3.75
08/30/10 TASR opens Monday at $3.69 (entry point)
08/28/10 TASR listed as a new play

Current Target(s): $ 4.90
Current Stop loss: 3.75
Play Entered on: 08/30/10
Originally listed in New Plays on 08/28/10


WellPoint Inc. - WLP - close: 58.08

11/13 update: Healthcare stocks continue to look strong and WLP managed to rally to a new six-month high. However, if the stock market corrects the healthcare sector will likely follow. I would look for a dip back toward $56.00 as a potential entry point to buy call LEAPS on WLP but I'd probably wait for a bounce from this level. FYI: Technically the 50-dma crossing up over the 200-dma is normally a very bullish signal.
Stop loss is at $52.75.

- Current Positions -
Oct 14th, 2010 - entry price on WLP @ 57.75, option @ $5.25
symbol: WLP1221A65 2012 Jan $65 call - current bid/ask $ 5.00/ 5.20

10/14/10 Play Triggered when WLP hit $57.75, option @ $5.25

Current Target(s): $69.75
Current Stop loss: 52.75
Play Entered on: 10/14/10
Originally listed on the Watch List 10/11/10


Watch

Consumer Goods & Energy

by James Brown

Click here to email James Brown

Editor's Note:

We are seeing some movement in the watch list with candidates jumping to our active trade list.

-James


New Watch List Entries

DECK - Deckers Outdoor Corp

NFX - Newfield Exploration


Active Watch List Candidates

AAPL - Apple Inc.

BVN - Compania de Minas Buenaventura

CERN - Cerner Corp

DE - Deere & Co

F - Ford Motor Co.

GS - Goldman Sachs

HD - Home Depot

SBUX - Starbucks Corp.

WLL - Whiting Petroleum

WYNN - Wynn Resorts Ltd.


Dropped Watch List Entries

LLL and NOK graduated to the play list. NKE was promoted. NYX was dropped.


New Watch List Candidates:

Deckers Outdoor Corp. - DECK - close: 60.62

The recent strength in DECK has pushed the stock to new all-time highs. Resistance near $55-56 was very significant and shares are now in blue sky territory. We want to jump on board when the stock corrects. Look for a dip toward the same $56-55 zone. I'm suggesting a trigger to buy calls at $56.00. We'll place our stop loss at $52.00. Our first target is $64.50

Company Info:
Deckers Outdoor Corporation strives to be a premier lifestyle marketer that builds niche brands into global market leaders by designing and marketing innovative, functional and fashion-oriented footwear developed for both high performance outdoor activities and everyday casual lifestyle use. Teva®, Simple® Shoes, UGG® Australia, TSUBO®, Ahnu® and Mozo® brands are registered trademarks of Deckers Outdoor Corporation (source: company press release or website)

Buy-the-Dip trigger: $56.00

BUY the 2011 June $60 calls (DECK1118F60)

Chart of DECK:


Newfield Exploration - NFX - close: 65.80

I'm bullish on energy stocks but the current rally is overdone. NFX is very overbought at current levels. I am suggesting we wait for a correction and buy calls on a dip at $61.50. More conservative traders could wait for a dip to $60.00 instead. Broken resistance near $60.00 should be support. If triggered I'm listing our stop loss at $55.75. The $68-70 zone appears to be significant resistance. We'll set our first target at $69.00.

Company Info:
Newfield Exploration Company is an independent crude oil and natural gas exploration and production company. The Company relies on a proven growth strategy of growing reserves through an active drilling program and select acquisitions. Newfield's domestic areas of operation include the Mid-Continent, the Rocky Mountains, onshore Texas and the Gulf of Mexico. The Company has international operations in Malaysia and China. (source: company press release or website)

Buy-the-Dip trigger: $61.50

BUY the 2011 June $65 calls (NFX1118F65)

- or -

BUY the 2012 January $65 calls (NFX1221A65)

Chart of NFX:


Active Watch List Candidates:

Apple Inc. - AAPL - close: 308.03

AAPL hit some heavy profit taking on Friday after news service that one investor reduced their position by 90% (selling one million shares). The stock has been struggling with resistance near $320 and if traders think the market is topping out then AAPL could be a big target for more profit taking. Currently our target to buy the dip is at $290.00 but more conservative traders could aim for a dip closer to $280 instead.

If we are triggered at $290 I am placing the stop loss at $274.00. Our first long-term target is $345.

Buy-the-Dip trigger: $290.00

BUY the 2012 January $300 calls (1221A300)

- or -

BUY the 2013 January $320 calls (1319A320)


Compania de Minas Buenaventura - BVN - close: 53.94

Commodities remained strong throughout the week until Friday's widespread sell-off. BVN acts like it's topping out and I would expect to see a correction soon. At a minimum I'm looking for a pullback to $50.00 but I'm hoping for a pull back toward $47-46. We will keep our trigger to buy call LEAPS on the dip at $48.00. I would keep your position small (half normal size or less) given our aggressive entry point.

Buy-the-Dip trigger: $48.00 (half a position)

BUY the 2011 JUNE $50 calls (BVN1119F50)


Deere & Co - DE - close: 76.86

I really don't see any change from my previous comments on DE. The trend is up but the stock is overbought. I'm suggesting a trigger to launch bullish positions on a dip at $73.50. More conservative traders could wait for a dip closer to $70.00 instead. If triggered we'll use a stop loss at $66.90. Keep your position size small to limit your risk.

Buy-the-Dip trigger: $73.50 (only half a position)

BUY the 2012 January $80.00 calls (DE1221A80)


Ford Moto Co. - F - close: 16.30

The rally in Ford has been a little outrageous. I'm wondering if investors will move money out of ford and into the GM after the company IPOs again. Look for GM's IPO to spark some profit taking in Ford. I'm keeping our trigger at $14.30 for now. Stop loss at $12.95.

Buy-the-Dip trigger: $14.30

BUY the stock - or -
BUY the 2012 January $15.00 calls (F1221A15)


Goldman Sachs - GS - close: 165.83

We are still waiting for GS to see a correction. The pull back appears to have started last week but shares have not yet broken the sharp trend of higher lows. Please note I'm adjusting our entry point to buy calls to $160.75. We'll keep our stop loss at $152.25, just under the simple 200-dma. I would keep your position small (at least half your normal size) given our more aggressive entry point.

Buy-the-Dip trigger: $160.75

BUY the 2011 April $180 calls (GS1116D180)

- or -

BUY the 2012 January $190 calls (GS1221A190)


Home Depot - HD - close: 31.44

We are still waiting for HD to breakout over resistance at $32.00. I am suggesting we wait for a close over $32.50. When HD does close above this level we'll buy the open the next day. Stop at $29.90.

Wait for HD to close over $32.50, then launch positions.

BUY the 2012 Jan $35.00 calls (HD1221A35)


Nike Inc. - NKE - close: 82.62

I am promoting NKE from the watch list to a new play this weekend.


NYSE Euronext - NYX - close: 28.81

I am dropping the NYX as a watch list candidate. Shares have under performed and just broke down under their 200-dma on Friday. Our trigger was not hit.


Starbucks Corp. - SBUX - close: 30.19

SBUX has been digesting its gains with a healthy sideways consolidation. We still don't want to chase it here. I suggest waiting for a pull back. Our trigger to launch positions is at $28.50. We'll use a stop loss at $25.90. Our long-term target is $34.75 and $38.75.

Buy-the-Dip trigger: $28.50

BUY the 2012 January $30.00 calls (symbol: SBUX1221A30)


Whiting Petroleum Corp. - WLL - close: 106.22

Energy and oil services stocks have continued to perform very well. Yet now these sectors indices are nearing potential resistance. It's time for a little correction. I'm expecting WLL to pull back toward the $100-95 zone. We have a trigger to buy call LEAPS at $100.00. If triggered our stop loss is $94.00.

Buy-the-Dip trigger: $100.00

BUY the 2011 March $100 calls (WLL1119C100)

- or -

BUY the 2012 January $110 calls (WLL1221A110)


Wynn Resorts - WYNN - close: 111.00

The five-week rally in WYNN appears to be done. WYNN performed a bearish reversal and looks ready to correct. The stock might see some support near $106 but I think it dips lower. I'm adjusting our trigger to launch bullish positions to $102.50. Keep your positions small. This is an aggressive trade. We'll inch the stop loss up to $94.75.

Buy-the-Dip trigger: $102.50 (small positions!)

BUY the 2011 MAR $110 calls (WYNN1119C110)
- or -
BUY the 2012 Jan $120 calls (WYNN1221A120)